Legal Foundation of Electronic Procurement - Comparison Among UNCITRAL, EU, US and Korea

International Public Procurement Conference 6 August 24, 2014 Dublin City University Associate Professor Dae-in Kim (Ewha W. University, Korea)

Background

Electronic Procurement (E-procurement): procurement of goods, works, and services through internet based information technologies (UNCITRAL, 2011)

Challenges to e-procurement (UN, 2011)

1) Lack of awareness and capacity building program: lack of government policies and legal framework

2) Resistance to Change

3) IT infrastructure and internet readiness

4) Lack of cross governmental coordination: difficulties in legislation

5) ineffective implementation

6) Obstacles to cross border e-procurement

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Issues (1)

Legal Issues on e-procurement

1) What’s the desirable legal framework of e-procurement from the perspective of relationship among e-procurement law, general procurement law and e-commerce law?

- Diffusion Model: tendering and award aspect of e-procurement is regulated by general procurement law, while e-documents and e-signature is regulated by e-commerce law

- Integration Model: integrated most e-procurement related provisions into general procurement law

- Independent Model: almost all aspects of e-procurement is regulated by independent legislation separated from general procurement law or e-commerce law

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Issues (2)

2) What’s the relationship between tendering and award mechanism in general procurement law and e-procurement?

Is there any relationship between the level of facilitation of e-procurement and level of discretion of public officer in tendering and award mechanism? Is there any specific type of tendering or award which is more adaptive to e-procurement?

3) What’s the desirable relationship between law and technology in e-procurement legislation among following models (World Bank 2011) ?

- Minimalist approach

- Technology specific approach

- Two tiered approach

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Research Method

Comparative Legal Studies among UNCITRAL, EU, US and Korea

1) UNCITRAL (United Nations Commission on International Trade Law): Model Law on Procurement of Goods, Construction and Services (2011), Model Law on Electronic Commerce (1996), Model Law on electronic Signatures (2001)

2) European Union: Public Procurement Directive (2014), Electronic Commerce Directive (2001), Electronic Signature Directive (1999)

3) United States: Electronic Signatures in Global and National Commerce Act (E-Sign Act 2000), Federal Acquisition Regulation (FAR)

4) Korea: Act on Use and Facilitation of E-Procurement (2013), Act on the Procurement, Act on the contracts in which the State is a party

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UNCITRAL

Three considerations in implementation and use of e-procurement in the “Model law on Public Procurement” (2011)

1) facilitates the use of e-procurement

2) technologically neutral

3) give guidance of introducing and operation an e-procurement

E-procurement related provisions in Model law

- Article 5: publicity of legal text

- Article 6: information on possible forthcoming procurement

- Article 7: communications in procurement

- Article 40: presentation of tenders

- Chapter VI: electronic reverse auction

- Chapter VII: framework agreement procedure

E-signature and e-document is regulated by “Model Law on Electronic Signatures” and “Model Law on Electronic Commerce”.

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European Union Across the EU, e-procurement is still used in only 5-10% of

procurement process. There are over 240 electronic platforms or portals in the EU for public procurement, but only about 50% of them are capable of receiving electronic bids. Only two thirds of the EU Member States are operating such systems. (European Commission, 2012)

The new EU Public Procurement Directive (2014) has many provisions which facilitate e-procurement.

- Article 33: framework agreements

- Article 34: dynamic purchasing systems

- Article 35: electronic auctions

- Article 36: electronic catalogues and centralized purchasing activities and central purchasing bodies

- Article 53: electronic availability of procurement documents

- Article 61: online repository of certificates: e-Certis

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United States (1)

Electronic Signature in Global and National Commerce Act (E-Sign Act): Affords federal and state entities the right to set their own standards for electronic records (Section 104)

Federal Acquisition Regulation (FAR) Subpart 4.5: electronic commerce in contracting

FAR Subpart 8.4: Federal Supply Schedule

Federal Government’s Major Online acquisition system:

1) Electronic Subcontracting Reporting System (eSRS)

2) Federal Business Opportunities (FedBizOpps)

3) Federal Funding Accountability and Transparency Act (FFATA) Portal,

4) Federal Procurement Data System – Next Generation (FPDS-NG), etc.

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United States (2)

Things to be improved (Halchin, 2013)

1) questions have been raised regarding the accuracy, completeness, and timeliness of the contract award data available from FPDS and its successor FPDS-NG.

2) separate logins, overlapping data, the absence of a single, uniform level of service, and multiple vendor hosting system

3) efforts are being made to making procurement documents, including contracts, available to the public

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Korea (1) In 2002, Korean government established a comprehensive

national e-Procurement system called “Korea On-Line E-Procurement System (KONEPS)” which is managed by centralized procurement agency (Public Procurement Service: PPS).

To support the implementation of KONEPS, related regulations were revised including “Presidential Decree of Act on the Contracts in which the State is the Party” and “Presidential Decree of Act on Government Procurement.”

“Presidential Decree of Act on Government Procurement” provides the foundation of Multiple Award Schedule (MAS) system, which was modified based on the framework agreement in EU and IDIQ contract in US.

“Act on the E-Document” and “Act on the E-Signature” is also applied to e-procurement which is conducted through KONEPS.

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Korea (2)

Despite many achievements of KONEPS, following limitation were indicated.

1) Limited protection of KONEPS user’s information

2) Lack of prevention of fraudulent and illegal tendering

3) Limited accessibility of contracting information to general public

4) Overlapping investments into e-procurement system in some public enterprises (Ministry of Defense and other 20 public enterprises manage their own e-procurement system)

To address these problems, “Act on the Use and Facilitation of E-Procurement” was enacted in March 2013.

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Korea (3) E-tender notice and establishment e-contract document (Article 6-9)

Sending and Receiving of E-Document (Article 11)

Relationship between PPS and customer agencies in e-procurement (Article 12-13)

If each agency would like to establish its own e-procurement system, it should get consultation with Minister of Strategy and Finance. (MOSF) (Article 14)

The protection of KONEPS user’s information with criminal penalty (Article 16-18)

Prohibition of illegal and fraudulent bidding (Article 19-20)

Strengthening training of e-procurement personnel (Article 21)

Promoting international cooperation development in e-procurement (Article 22)

Establishment of E-Procurement Support Center (Article 23-24)

False Claims (Article 26)

Sanctions and Penalties (Article 27-29)

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Overall Framework of Legislation (1)

Framework Agreement,

Reverse Auction

E-signature, E-document Others

UNCITRAL General procurement law

E-Signature, E-Commerce law

General procurement law

EU General procurement law

E-Signature, E-Commerce law, but part of this is regulated by general procurement law

General procurement law

US General procurement law

E-Signature, E-Commerce law, but can be regulated by general procurement law

General procurement law

Korea General procurement law

E-Procurement law, but can be regulated by E-Signature, E-Commerce law

E-Procurement law

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Overall Framework of Legislation (2)

Models Strength Weakness

Diffusion Model (UNCITRAL)

- Enable easy regulation using pre-existing legislations

- Hard to understand overall aspects of e-procurement - May result tendering and award aspects and e-commerce aspects of e-procurement are separated

Integration Model (EU, US)

- Easy to understand e-procurement in tendering and award context

- E-commerce aspects of e-procurement tend to escape from the sight, as general procurement law is more focused on tendering and award

Independent Model (Korea)

- Easy to understand overall aspects of e-procurement - Avoid overlapping legislation on e-procurement

- May result in inefficient separate regime both from general procurement law or e-commerce related law

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Relationship between e-procurement and tendering and award mechanism in general procurement law

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Tendering and Award E-Procurement

EU - Open procedure is widely used - Economically advantageous tender is

actively used - Contracting Officers tend to have

intermediate discretion

- Limitation in automation of information can be a detriment to facilitation of e-procurement

US - Competitive negotiation is widely used - Tradeoff between cost factor and non-

cost factor is not strictly quantified - Contracting Officers tend to have wide

discretion

Korea - Open or Restricted competition is widely used - Lowest price is widely used, even in economically advantageous tender, price factor is critical - All evaluation factors in tendering or award tend to be quantified and aggregated - Contracting Officers tend to have little discretion

- Easier to have automation of information - Facilitates end-to end e-procurement

Relationship between law and technology

Strength Weakness

Minimalist Approach (UNCITRAL, EU, US)

- Flexible to technological development - Facilitate cross-border procurement

- Various authentication system can cause inefficiency in procurement

Technology Specific Approach (Korea)

- Uniform authentication system can enhance overall uniformity of procurement - Reduce risks of vendors to choose various authentication methods according to different procurement chances

- Can be an obstacle to cross-border procurement - Need to revision of regulation according to technological development

Two-tiered Approach

- Can adapt to different level of security need in one jurisdiction

- Can be an obstacle to uniform authentication system

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Lessons 1) Overall framework of e-procurement should be approached

comparing the strength and weakness of each model.

- Overlapping legislation should be avoided, and efforts should be made to allow e-procurement users understand the system more easily.

2) Full digitalization of procurement tend to be more compatible with tendering and awarding system which focuses on quantifiable factors such as price.

- E-procurement should have enhanced compatibility with procurement system which allows more discretion to Contracting Officers.

3) The strength and weakness of technology specific approach should be taken into account.

- In Korea, technology specific approach contributed to the facilitation of e-procurement. However, it is criticized to be lack of cross-border competition.

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Thank You.

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